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Client received a loan of €70K from his sister 5 years ago. He used this loan to repay part of a loan on a let property. His sister has not charged any interest on the loan which is a ten year loan and will not be charging my client any interest over the duration of the loan. Does client have any tax issues in relation to the loan?
If we assume the “market” interest rate for the use of the money was say 5%, then he has taken an annual gift of 5% x €70,000 = €3,500 for each the years 2010 to date. €3,000 of the €3,500 would be covered by the annual gift exemption, so that leaves €500 potentially taxable each year, and for 7 years, €500 x 7 = €3,500 of the sibling threshold of €30,150 would have been used.
So really all that’s happened is that he has eroded his €30,150 threshold.
Of course, if has taken other gifts from siblings which have used up that threshold then there could be an annual charge on the value in excess of the €3,000 annual exemption.
Finally, if there is no loan documentation and no capital repayments, it would not be unreasonable for Revenue to argue that the entire €70,000 was a gift and taxable as such (giving rise to a tax charge in 2010).